Bernanke says stimulus is needed

Comments suggest Fed is not ready to curtail its bond purchases

Associated Press

Associated Press

Published 5:42 pm, Wednesday, May 22, 2013

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before a Senate Joint Economic Committee hearing on "The Economic Outlook" Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in...

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before the Joint Economic Committee hearing on "The Economic Outlook" Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in...

Federal Reserve Chairman Ben Bernanke listens as he testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before a Senate Joint Economic Committee hearing on "The Economic Outlook" Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

Federal Reserve Chairman Ben Bernanke listens as he testifies on...

Federal Reserve Chairman Ben Bernanke listens as he testifies on Capitol Hill in Washington, Wednesday, May 22, 2013, before the Joint Economic Committee hearing on "The Economic Outlook" Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to end its extraordinary stimulus programs. (AP Photo/Manuel Balce Ceneta)

Chairman Ben Bernanke told Congress Wednesday that the U.S. job market remains weak and that it is too soon for the Federal Reserve to slow its extraordinary stimulus programs.

Reducing the Fed's efforts to keep borrowing rates low would "carry a substantial risk of slowing or ending the economic recovery," Bernanke said in testimony to the Joint Economic Committee, a panel that includes members of the House and Senate.

The Fed has been buying $85 billion a month in Treasury and mortgage bonds since September. That has helped lower long-term interest rates and encouraged more borrowing and spending.

Lawmakers pressed Bernanke to explain when the Fed might start to scale back its purchases. Bernanke said the pace could be reduced over the next few meetings, if the job market shows "real and sustainable progress." And he wouldn't rule out curtailing the purchases by Labor Day.

But Bernanke said that the Fed could just as quickly reverse course and pick up the pace if the economy falters.

Most of his testimony focused on the many risks facing the economy, along with the benefits gained so far from the Fed's stimulus. His comments suggest the Fed is not ready to taper the bond purchases.

Stocks surged after Bernanke spoke but closed down 80 points at the bell.

Paul Ashworth, an economist at Capital Economics, said Bernanke's remarks suggest "he is in no hurry to curb" the bond purchases. Ashworth predicts the central bank will begin to trim the bond purchases toward the end of the year and end them completely in the first half of 2014.

At the hearing, Bernanke declined to answer a direct question about whether he would consider serving another four-year term when his current term ends in January.

The Fed has said it plans to continue its $85 billion-a-month in Treasury and mortgage bond purchases until the job market improves substantially. And after its April 30-May 1 meeting, the Fed said it could increase or decrease the pace depending on how the job market and inflation fare.

Bernanke noted that the economy is growing moderately this year and unemployment has fallen to a four-year low of 7.5 percent. Still, unemployment remains well above levels consistent with healthy economies. And Bernanke said higher taxes and deep federal spending cuts are expected to slow economic growth this year.

In recent months, the job market and the broader economy have shown renewed vigor. The economy has added an average of 208,000 jobs a month since November. That's up from only 138,000 a month in the previous six months.